The future of "declining" cities

[Jimmy H.]

What do you think the future holds for cities, regions, and states that are on the "decline"?

Some of your more basic examples include cities like Toledo and Detroit - the Rust Belt.

From an investment perspective, there are undoubtedly still people investing in these areas for cash-flow.

But, we have reached an interesting point in the development of America. The original development of America started in the East and created iconic cities such as Chicago and New York and manufacturing towns in the Midwest. But the Midwest in particular, which was booming during the industrial revolution is now quite derelict (generalization) - there are no manufacturing jobs to be had anymore as they've moved overseas. This leads to unemployment, crime, decreased capital investment, decreased revenues to the city/state, and eventually decreased education quality and more and more divestment - it's like a downward spiral, or a self-manifesting black hole, if you will.

On the bright side, the population in America is set to increase exponentially during my generation. It also seems that our gov't is going to devalue the dollar to try and spur investment and blue collar job growth.

What do you think will happen to these cities and areas. Is the downward spiral impossible to break? Cities like New York have diversified largely into financial and other services. But an entire country can't live on servicing each other when no one is making anything. As our population trends further south and west, what will happen to these cities? I can't imagine them turning to true ghost towns, but at the same time it's hard to picture them breaking out of the "spiral". Perhaps they will continue to plod along with sluggish economies and population/job growth for the next 50 years?

I have been thinking about investing in such areas for cash flow, and although I may not see much price appreciation if I do, I know my investment won't just up and disappear. But it got me thinking, aside from just an investment perspective, what does the future of these cities truly hold?

Thoughts?

[Vikram C.]

Cities like Detroit are similar to turn-around plays in the stock market. There are specialist investors who make good money betting on turn-around plays, but for the vast majority of investors, those investments do not pan out even when they buy at low prices because the company continues to decline. Even someone as astute as Buffett has been burnt many times in such opportunities and he likens it to kissing a frog and hoping a princess would pop out - except in his case the frog continued to croak.

Having said that, I must admit that someone with the specialized knowledge that allows him to determine which cities will rise again or, more likely, which parts of declining cities may buck the tend, can make good money in such opportunities.

For most of us without that degree of expertise, the growing parts of the country are probably safer bets - provided we don't get over-excited by the growth and pay more than the asset is worth.